Professional Documents
Culture Documents
Credit Risk Loan Portfolio Management
Credit Risk Loan Portfolio Management
CREDIT RISK
CREDIT RISK
Financial exposure resulting from a banks dependence upon another party to keep it whole. It is acquired when bank funds are extended or committed to another party. Must be recognized and evaluated when acquired and priced appropriately.
IMPACT OF CREDIT
Impacts capital through diminished earnings from increased loan losses Increases personnel and legal costs Impacts banks ability to market new equity or debt issues Increases the level of other risks, liquidity, legal, and reputational risk
MEASUREMENT NEEDS
System to measure risk at onset and throughout duration of the loan Ability to aggregate customers credit risk
CONTROL ELEMENTS
Policy Credit risk evaluated at the outset of the borrowers ability to repay Credit structured so that the purpose of the loan will match the source of repayment Secondary sources of repayment are identified
LENDING POLICY
Should contain general outline of scope and allocation of credit Broad and not overly restrictive Flexible rules Provide for presentation of loans staff believes are worthy of consideration which may or may not be in scope of the policy